For years, banking professionals have been up in arms about the unfair business advantages they say credit unions have over banks. Credit unions have been on the defensive in the debate over an equitable playing field.
Both sides continue to address the controversial issue on Capitol Hill. House Resolution 2317 is now moving through Congress, which reflects the latest version of credit union regulatory improvements.
“It’s the first proactive, offensive bill that credit unions have had introduced in Congress,” said Charles Elliot, president of the Mississippi Credit Union Association. “We’re attempting to create a regulatory environment for credit union success, and this bill would permit credit unions to serve the small business loan needs of its members. Prior to this, banks have controlled the regulatory environment of credit unions, and we’ve always been in a defensive position against their attacks.”
The bill would allow credit unions to expand member business loans in the business-lending arena from 12.25% to 20% of total assets. The primary use of the loans, which now average $57,000 in Mississippi, would likely cover the financing of rental property, according to Elliott.
In Mississippi, banking institutions have 99.996% of the market share of business lending, compared to credit unions’ .004%. The bill would ensure that Mississippi banks would retain a minimum of 98% of the market, said Elliott.
Charlotte Birch, spokesperson for the American Bankers Association (ABA), said Congress put into place the 12.25% cap in 1998, at the same time it expanded credit unions’ membership opportunities. “It’s not some age-old cap,” she said. “It was consciously done not so long ago. But I think the large credit unions are bristling under the restriction and want to make more business loans. That’s of great concern to bankers, who are looking at how much the credit union industry has changed. They’ve seen this emergence of a new breed of credit union that shows little resemblance to a traditional credit union, but looks more like a bank.”
Throughout the nation, credit unions outnumber banks, yet have a significantly smaller market share. In Mississippi, 114 credit unions serve more than 500,000 members (roughly 17% of the population), with assets totaling $2.6 billion, while 102 banking institutions report assets totaling $42.1 billion. The average credit union in Mississippi has assets of $22 million, compared to more than $400 million in assets for the average bank.
Keesler Federal Credit Union, Mississippi’s largest, with the second largest market share on the Gulf Coast, reported $1.01 billion in assets at year-end, up 11.2% over the previous year, serving 173,428 members.
“If there is such an advantage to being a tax exempt credit union, why has no bank converted to a credit union charter?,” asked Elliot. “Banks have lobbied, and will continue to lobby, for restrictions of every form possible to impend the growth of credit unions and the benefits they can provide consumers.”
Credit unions were formed as “credit cooperatives” in the mid-1800s in Germany as a service to farmers. The first credit union in the U.S. was established on November 24, 1908. By the end of 2004, assets in all U.S. credit unions had grown to $668 billion.
“In other words, it took 96 years of growth for the credit union movement to reach that amount,” said Elliott. “In contrast, U.S. banking institutions grew by $1.03 trillion in 2004 alone.”
Under federal tax law, credit unions retain the “cooperative” status, and are allowed deductions not available to regular corporations, such as a deduction for dividends paid to members, and can eliminate their taxable income.
“Don’t let all that fool you,” said Elliott. “Credit unions are more heavily regulated than any other financial institution in this country. That’s the bottom line.”
By not taxing credit unions in the same manner as other financial institutions, the White House predicts that more than $7 billion in taxes will be lost from 2005 to 2009, “but Congress continues to exempt credit unions from federal taxes simply because they are member-owned, not-for-profit financial cooperatives,” said Elliott.
If the bill in play becomes law, consumers won’t feel any immediate impact because it is a future-oriented bill, said Elliott.
“It doesn’t matter,” said ABA senior economist Keith Leggett. “The bill represents a shift regarding credit unions’ mission. Credit unions were set up to serve people of modest means, and this bill will further move them away from serving low to moderate income consumers and will allow them to make major million-dollar business investments.”
At the end of last year, 56% of Keesler’s members had less than $100 on deposit at the credit union, Elliott pointed out.
“You’re talking about 97,000 members, many of whom did not have enough money at Keesler to even qualify to open an account at a bank,” he said. “There’s no question about who credit unions serve.”
When the bill was introduced last year, “the response was, ‘Hell, no,’” said Birch. “Nothing’s changed from one year to the next. This is simply unacceptable.”
Contact MBJ contributing writer Lynne W. Jeter at email@example.com.